The Mac App Store, The Good &amp Bad

Earlier this week, Apple launched its long awaited App Store. You can now buy apps for the Mac just like you are already buying apps for your iPhone or iPad. It is really easy. The install process is simply to push a button. Since the App Store comes pre-installed on all Macs, it is likely to become the de-facto place to find and buy what you need.

There are, however, just two problems. Apple's 30% cut, and the rather monopolistic world view that there is only one way to sell a product. It is incredibly limiting, and like the iPhone app store, everything has to go through an approval process.

Here are some of the things you cannot do:

You cannot provide trials or demos of your software, effectively removing one of the key elements of selling expensive software programs. This is not really a problem if you are selling smaller apps for $4.99, but it is a huge problem for companies selling apps for $49 and above.

You cannot do beta - at all. I agree that betas are problematic, but why not sell betas for free, which you could then upgrade to the full release later for a price?

But, you cannot do upgrades either. You can only sell a full app. There is no way to sell "version 2" apart from selling that is a completely separate app (with no upgrade discounts).

You cannot build apps that extend the experience beyond the open app window. That is you may not create apps that run in the background, use system processes, extend the system, or anything like that. Forget about apps like Air Video Server, Connect360, Dropbox, Things or even Evernote. Or diagnostic programs or security software that needs administrative access.

Strangely enough, however, the Mac App Store launched with both Evernote and Things - so it seems like it is one of those "only if we like you, kind of rules."

And then there are the many strange restrictions. One of them being that Apple forbids mentioning other platforms - so you can forget about creating multi-device apps (but again, in the App store, Evernote lists their app to be available for Mac, Windows, Android, Blackberry etc - Same with the Kindle app. )

Apple will reject apps that open up additional features or functionality outside of the App Store.

Apps are furthermore forbidden from renting content or services that expire after a period of time. Hulu anyone?

Apps that require users to share personal information, such as email address and date of birth, in order to function will be rejected. Again, why did they then accept Evernote. It can only be used once you set up an account with your email address.

And the list goes on...

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The problem I have with the App store is that it is installed by default. It is fully controlled by Apple. And restricts you to only one type of business model.

No trails, no upgrades, no subscriptions, and no "helper apps".

Granted you don't have to use the Mac App Store, but that is like saying that you don't have to use Internet Explorer on Windows computers. Try telling that to Netscape.

This reminds me of how Apple is trying to force publishers into very limiting business models, that discourages a multi-device strategy on the iPad.

The 30% cut

We all know why Apple created the Mac App Store. They realized that they could create a situation where they could get a 30% cut of the entire Mac software ecosystem.

That is a really tempting opportunity - and very a greedy one.

However, there are two sides to this.

For developers who create small and cheap apps, this is a golden opportunity to reach a much bigger market - for a very low cost.

Take Angry Birds. It is sold for $4.99, which means the cost of acquisition - as in how much it costs to get one sale - is just $1.50 per person. That makes the Mac App Store the most cost efficient way to get a sale anywhere. Even the cost of acquisition on low priced banner ads is more expensive.

The app store is wonderful news for small Mac developers. Never before have you been able to sell your products as cheaply and with as much exposure. And for that reason alone, we are going to see an explosion in small Mac developers.

The problem is when you sell more expensive software. For a product like Microsoft Office for the Mac, Apple's cut is $84. That is an insanely high cost of acquisition.

Pretty much every other form of marketing would yield a better return of investment.

It gets even worse when you look at products like Adobe's Creative Suite 5. If they were to sell it via the Mac App Store, they would have to give Apple $570 per sale.

It is just not happening.

The Mac App Store is brilliant for small developers, but it is never going to happen with the bigger apps. The economics of giving Apple a 30% cut is insane.

And while there is a chance of higher exposure, look at the iPhone App Store. Unless Apple decides to feature your product, the actual exposure is close to zero. Most iPhone developers do not actually make a living.

It is the same with the cost of setting up a payment system. It is true that it is expensive if you were to build that yourself. But why do that? Why not use the many 3rd party payment systems?

For small companies, Paypal is extremely cost efficient. Price per transaction is just 3.9% + $0.30. If you want a more professional solution, you can outsource it to companies like Fastspring which is used by several Mac developers.

Their prices are a bit higher, at 5.9% + $0.95, but in return you get a really smooth and beautiful system that you can customize to completely match your brand.

Let's compare:

Cost of acquisition for a product priced at $4.99

Mac App Store: $1.5 per sale

PayPal: $0.49 per sale

Fastspring: $1.24 per sale

Cost of acquisition for a product priced at $79

Mac App Store: $23.7 per sale

PayPal: $3.38 per sale

Fastspring: $5.61 per sale

Is the added exposure in the Mac App Store worth $18 per sale? Right now, while there are so few apps in the App store, the answer is probably yes. But not in six months, when the Mac App Store will be overcrowded just like the App Stores on the iPhone and iPad.

The Mac App store is going to a great place to find a lot of small apps. The snackable apps. It is going to be a huge success - but it is not for everyone.

But keep in mind this is not paying customers, and it was expected that there would be a huge initial exposure for the early partners. Let's see in another 4 months or so.

Also keep in mind that Evernote isn't paying Apple a 30% cut. Premium subscribers are added outside the Mac App Store. Evernote is getting full exposure for free. Evernote is a free download in the App Store.